Fiscal cliff deal will add $4 trillion to US deficit, says CBO

The Congressional Budget Office has revealed that the Senate-passed
legislation to avert the "fiscal cliff" will add nearly $4
trillion to federal deficits over a decade, largely because it extends low
tax rates for nearly every American.

By Telegraph Staff, and agencies

8:01PM GMT 01 Jan 2013

The congressional scorekeeper's analysis could fuel further debate about the legislation, which could come to a vote in the US House of Representatives on Tuesday .

CBO said the fiscal year 2013 deficit would be about $330bn higher than if Congress fails to act and lets $600bn in higher taxes and spending cuts take effect.

It comes as senior House Republican Eric Cantor said he opposed the fiscal cliff bill, while House Minority Leader Nancy Pelosi called for a "straight up or down vote" on the proposals.

Earlier on Tuesday, Barack Obama hailed the last-ditch deal to avert the 'fiscal cliff' and called on the House of Representatives to vote for the deal as it prepared to meet on Tuesday.

Senate passage set the stage for a final showdown in the House of Representatives, where a vote was expected later on Tuesday or perhaps Wednesday.

Republican Tom Cole said the House should vote on Tuesday, adding it was important to act before the markets open.

President Obama called for the House to act quickly and follow the Senate's lead.

"While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay," he said in a statement, reported by Reuters.

"There's more work to do to reduce our deficits, and I'm willing to do it. But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans," Obama said.

The Senate's vote moved the US economy back from the edge of a so-called fiscal cliff, but the deal could still face stiff challenges in the House of Representatives.

Under the deal voted for by the Senate, some taxes on the wealthy will be raised while low taxes on the middle class, which have been in place for a decade, were made permanent.

But the measures did little to rein in huge annual budget deficits that have helped push the US debt to $16.4trn.

The agreement came too late for Congress to meet its own deadline of New Year's Eve for passing laws to halt $600bn in tax rises and spending cuts which strictly speaking came into force on Tuesday.

But with the New Year's Day holiday, there was no real world impact and Congress still had time to draw up legislation, approve it and backdate it to avoid the harsh fiscal measures.

That will need the backing of the House where many of the Republicans who control the chamber complain that President Obama has shown little interest in cutting government spending and is too concerned with raising taxes.

Members were thankful that financial markets were closed, giving them a second chance to return to try to head off the fiscal cliff.

But if politicians cannot pass legislation in the coming days, markets are likely to turn sour. The US economy, still recovering from the 2008/2009 downturn, could stall again if Congress fails to fix the budget mess.